Deal for Burlington Defended

The head of ConocoPhillips Co. on Tuesday said his company’s proposed $35.6-billion acquisition of oil and natural gas producer Burlington Resources Inc. made sense even if energy prices plunged.

But some analysts remained less than enthusiastic about the combination, saying ConocoPhillips overpaid, and investors sent the company’s shares down by more than 4%.

Jim Mulva, ConocoPhillips’ chairman and chief executive, said Tuesday that buying Burlington made sense even if the price of natural gas declined over time from current levels above $15 per 1,000 cubic feet to $5.

Mulva also downplayed the effect of his company taking on new debt, which he said would be paid off in three years. ConocoPhillips, the third-largest oil and gas producer in the U.S. behind Exxon Mobil Corp. and Chevron Corp., would finance the acquisition with existing cash and credit and new bank and bond debt.

The deal would increase ConocoPhillips’ profile as a leading producer of natural gas in North America. But some analysts questioned Conoco’s strategy of boosting its portfolio in an area in which the resource base was quickly maturing. They also noted that Conoco said the deal would cut earnings per share 2% next year and closer to 4% in 2007.

ConocoPhillips shares fell $3.05 to $58.20.

“The stock is down because there is a growing realization that this is a very expensive and poor acquisition,” said Benjamin Dell, an analyst for Sanford C. Bernstein & Co. “They appear to be buying at the peak of the market.”

Dell predicted that gas prices would fall sharply by the time the deal was scheduled to close in the spring. He said ConocoPhillips could have expanded its reserves more cheaply through internal growth or buying another company, such as Occidental Petroleum Corp.

Robert S. Morris, an analyst with Banc of America Securities, said the purchase price was nearly one-fifth higher than other deals this year based on Burlington’s proven reserves.

Constance E. Helfat, a Dartmouth professor of business strategy who writes about the energy industry, said ConocoPhillips would gain Burlington’s expertise at operating in hard-to-reach Western gas fields as an alternative to operation in risky places such as Russia.

“Not every oil and gas company has this sort of expertise,” Helfat said, “so Burlington was an obvious target if you’re looking to bulk up your reserves.”